Budget Spotlight: Rethinking Massachusetts’ Tax Cap To Better Serve Residents

With Massachusetts lawmakers expected to soon finalize a Fiscal Year 2026 budget that could be close to $62 billion, taxpayers might wonder: shouldn’t there be stronger limits on how much the state can collect? There are, but they’re not working.

Back in 1986, Massachusetts voters passed Chapter 62F on the ballot—a statute that caps the total amount of revenue the state government can collect from taxes. Today, Massachusetts is one of 19 states that impose a limit on state revenue collection.

The intent of the law was commendable: ensure the state isn’t collecting more than it needs in taxes, and if collections are too high, some would be returned to the taxpayers. This would also put guardrails on spending, so that state lawmakers couldn’t justify drastic budget increases because of larger and larger tax collections, ensuring revenue collections and state spending stayed in line with taxpayers’ own wage growth.

In practice, the measure didn’t do quite as much as policymakers hoped to curb revenue collections. But, there could be a simple fix to return more money to the taxpayer.

How the Measure Currently Works

Since Fiscal Year 1986, the Massachusetts Department of Revenue has been required to calculate an “allowable state tax revenue” limit.

For every year since, the “allowable” revenue cap could not grow higher than the average growth of Massachusetts’ wages and salaries for the prior three years. If actual collected tax revenues were higher than the “allowable” revenue limit in a given year, that money would be refunded back to taxpayers.

In practice, the cap has only been triggered twice in almost 40 years. Most notably, the cap returned nearly $3 billion to taxpayers in 2022. Since the law went into effect in 1987, tax revenue collections spiked 386 percent. Since the turn of the century, revenue has grown over 150 percent. This impacts spending. Even since 2018, spending has increased by 54 percent—far surpassing wage growth as well as inflation.

Efforts to Strengthen the Cap

In 2002, the Beacon Hill Institute questioned whether or not this cap was actually doing its job: protecting taxpayers and effectively limiting spending growth. It looked like there could be a better solution. 

As an alternative, the Massachusetts High Technology Council (MHTC) proposed basing the cap on the actual tax revenue collections of the previous year, instead of the growth formula currently being used. This small formula change would make a huge difference on how the cap actually works to limit revenue growth.

If revenue were tied to actual tax collections from previous years, Massachusetts would have triggered the allowable revenue limit 27 times since the law went into effect. That amounts to tens of billions in taxpayer refunds since 1987 as a result of the MHTC-revised revenue cap.

Conclusion

In theory, the chapter 62F revenue cap was an important step in putting up guardrails on state tax collections. In reality, it hasn’t actually reined in tax revenue and therefore state spending. 

Had the MHTC-revised cap been in place, taxpayers would have received back tens of billions of dollars. Of course, streamlining revenues would inevitably mean tradeoffs on state spending priorities. But returning excess revenue collections to taxpayers in years of strong economic growth, rather than spending all those funds and growing the baseline budget for future years, is a prudent policy.  Fiscal responsibility is key to our state’s long-term economic success—not to mention a good way to keep our state an affordable place to live and do business.